Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Farmers to see changes to farmhouse deductibility


Farmers to see changes to farmhouse deductibility

With farmers spending an increasing amount of time in the office, or at the kitchen table as the case is for many farmers across New Zealand, the changes to the deductibility of farmhouse expenses may come as a surprise. “With changes impacting farmers for the 2017/2018 financial year, it is important they take the time to find out how the changes could affect them,” Tony Marshall, Agribusiness Tax Specialist for Crowe Horwath points out.

Since the 1960s the IRD has allowed full-time farmers a deduction of 25% of farmhouse expenses without any evidentiary support. Inland Revenue Group Tax Counsel Graham Tubb says that this has allowed some farmers to claim deductions for private spending.

Last week the IRD finalised the proposed Farmhouse Expenditure Interpretation Statement. A key part of the statement revolves around a distinction being made between farming businesses where the cost of the farmhouse, including curtilage and improvements is 20% or less of the total cost of the farm (Type 1 farms), compared to those where the value is more than 20% of the total cost of the farm (Type 2 farms).

“Where farmers fail the Type 1 test based on cost, they can apply a market valuation to ensure that they pass the test,” Marshall notes. “This would be relevant when a farm has been owned for a significant period of time, but a new farm house has been built recently.”

Marshall has summarised the notable highlights of the statement as follows:
20% default deduction for farmhouse expenditure for Type 1 farms, down from the previous 25% deductibility. Taxpayers remain free to complete their own calculation if the claim exceeds 20%
100% interest deduction for Type 1 farms
100% rates deduction for Type 1 farms
minimum 50% deduction for telephone rental costs.
“Any farmer who is not Type 1 will likely see a large drop in deductions for farmhouse expenses, particularly around interest. This will hit those particularly hard that fall into the Type 2 category, which could be the likes of kiwifruit farms, orchardists and the bloodstock industry where the farming activity is full-time but the cost of the farmhouse relative to the total farm is significant,” Marshall adds.

“However Type 1 farmers will not go unaffected. They will still have a 5% drop in deductions for farmhouse expenditure such as repairs and maintenance, electricity and the likes. The telephone rental deduction could drop to 50% – not huge numbers in the whole scheme of things, but still a drop,” Marshall continues.

“It is important farmers are prepared for potential changes to their deducibility, including that they may need evidentiary proof to support higher farmhouse deductions. If they have any questions, they should contact their adviser,” says Marshall.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Media: NZME 'In Discussions' To Buy Stuff

NZME confirms that it is in discussions with Stuff’s owners Nine and has put a proposal to the Government regarding a possible transaction. However, NZME notes that these discussions are preliminary... More>>

Consultation: Plan Of Action To Protect Seabirds

The draft National Plan of Action plan outlines the Government’s commitment to reducing fishing-related captures of seabirds, with clear goals and objectives, supported by an implementation plan. More>>


Housing Issues: Fairer Rules For Tenants And Landlords

The key changes include: - Limit rent increases to once every 12 months and banning the solicitation of rental bids by landlords. - Improve tenant’s security by removing a landlord’s right to use no cause terminations to end a periodic tenancy agreement... More>>


Reserve Bank: Official Cash Rate Unchanged At 1 Percent

The Monetary Policy Committee has decided to keep the Official Cash Rate (OCR) at 1.0 percent. Employment remains around its maximum sustainable level while inflation remains below the 2 percent target mid-point but within our target range... More>>


Food Prices: Avocados At Lowest Price In Almost Three Years

Avocados are at their cheapest average price since February 2017, with tomato, lettuce, and cucumber prices also falling, Stats NZ said today. More>>